I'm a multiple-time entrepreneur, living and working in the heart of Silicon Valley for the past quarter century. Currently, I spend most of my time working on a new startup in the online education arena. I've got a BA in political science and an MBA from Stanford. Having been around technology and business on the leading edge, I write mostly about what's new and what's coming for companies and the country. You can find me on Facebook, Twitter and Google+ You can e-mail me at forbes_at_rogodotnet

New York's Top VC Says Apple Doesn't Get The Cloud; He's (Mostly) Wrong

Fred Wilson is one of the smartest guys in venture capital. He’s made a fortune backing Twitter and Tumblr, among others, at Union Square Ventures. But when it comes to AppleApple, Wilson has a blind spot that’s almost as big as as his bankroll. Asked which tech companies would be the most valuable by 2020, Wilson dismissed Apple’s prospects out of hand at the TechCrunch Disrupt conference in New York, questioning the company’s competence in the cloud. Yet despite some visible failures, Apple’s overall cloud achievements would compare favorably with anyone’s. And the company seems to have just gotten started.

Fred Wilson (left) with Michael Arrington at TechCrunch Disrupt in New York yesterday.

Maybe Wilson can’t see it because he just doesn’t trust Apple. He dumped all his stock 5 years ago after he suspected Steve Jobs wasn’t being straight about his health, as Fortune’s Philip Elmer-DeWitt recalled. Apple traded at $91 back then; yesterday it closed over $600. While Wilson has done just fine, he hasn’t stopped doubting Apple. Insisting in 2011 that his advice to focus on Android over iOS was correct, Wilson cited data showing Apple’s share of smartphones in use in the U.S. at “just” 25%. Today, that number has reached 42%, per comScorecomScore. Wilson’s belief that smartphones would follow PCs into a Windows vs. Mac dynamic hasn’t played out so far, could he be wrong about Apple in the cloud too?

Oddly, Apple launched iCloud not long after Wilson’s post on Android’s coming dominance. It’s just a small piece of what Apple does in the cloud, but to say its hugely successful is an understatement. Prior to iCloud, phone “backup” was done rarely and transferring information to a new device involved some arcane device in the back of the store you bought your phone.

Now, with a click or two to set it up, your contacts, apps, photos, et al. are not only easily restored to a new iPhone, they’re also on your iPad, your Mac, as well as safely duplicated in an Apple data center. This all happens so seamlessly that more than 1/3 of a billion people use iCloud backups regularly without even thinking about them. The experience using Apple’s iWork apps is equally transparent. Create a document in Keynote on a Mac and it just appears on your iPad when it’s time to present. That you don’t need to do anything fits the Apple “it just works” model nicely.

Maybe that’s why the achievement is lost on Wilson? While GoogleGoogle offers a similar suite of services, it doesn’t overstate the case to say Apple’s backup-and-sync service offering is the most successful ever created. And that’s in just over two years and, for most users, completely free. Wilson talked about the commoditization of hardware, but Apple doesn’t sell commodity hardware and it hasn’t in a long time. It sells elegant hardware that comes bundled with a suite of service that make its devices desirable through their simplicity and functionality. That seems easy to replicate yet Apple remains the most valuable company in the world.

To look to a more visible Apple cloud success, perhaps we should consider the absolutely massive iTunes/App Store franchise, instead. There, a company who Wilson says, “[doesn't] have anything in the cloud to speak of” has built a combination of the world’s largest music retailer and the world’s largest software store. Apple has sold more than 25 billion songs and there have been more than 50 billion apps downloaded. (Oh, and the company is also the leader in digital movie sales/rentals as well, though that business is far behind Netflix’s subscription-style offerings.)

Apple’s revenues from all those downloads would total $23.5 billion if it were accounted for as a standalone business, according to Asymco. That small part of Apple’s overall business would be #130 on the Fortune 500 if it were a standalone company. For a sense of just how much that is, Facebook — the company Wilson says will be the second-most valuable behind Google in 2020 — took in just under $8 billion last year. For having “nothing,” Apple’s producing a good deal more than nothing in cloud revenues.

And this is likely just the beginning for the company. Apple has two initiatives in the works right now that could easy be at least as valuable as its existing software businesses. The first is mobile payments, which Tim Cook called “one of the thoughts behind Touch ID,” Apple’s fingerprint sensor in the iPhone 5s. In a post-Target world, the best way to secure payments will ultimately be to guarantee that the person paying is really present and devices like a Touch ID-equipped iPhone are going to be a great way to do that. Cook also said Apple has close to 800 million credit card numbers, which is believed to be more than anyone else. The iWallet is coming and Apple is primed to get a small piece of an absolutely massive number of transactions going forward. That it already has expertise processing billions of them from the AppStore and iTunes shouldn’t be lost on experts, but perhaps it has.

The other area Apple is spending resources right now is in health monitoring. The coming iWatch and future versions of the iPhone will pack sensors that can track things like heart rate, blood pressure and perhaps even blood glucose and oxygen levels. (We’ll look much more deeply at this in a future installment.) The upcoming iOS is expected to include an app called Healthbook that will track data about you and Apple is said to be considering a plan for a full-blown health and fitness platform modeled on the AppStore.

Working with healthcare providers and insurance companies isn’t easy, but here Apple has strengths that no one can match. The very things Wilson and others hate about Apple — the “closed” iPhone ecosystem — are the kinds of things that will engender trust in the healthcare system. It’s easier to secure Apple devices and to ensure consistent results on a smaller set of hardware. Certainly, none of this can happen overnight, but with Apple’s resources and commitment, it likely will happen.

And with the literally trillions spent on healthcare, it’s not difficult to imagine the company carving out a small piece of that absolutely massive pie for itself. Already, the iPhone is having an impact in medicine, being adapted into a diagnostic tool with add-ons sensors as well as performing simple functions like medication reminders and two-way communication with doctors. It’s safe to say this is just the beginning.

Of course, none of this guarantees Wilson won’t be right about Apple. Many a tech giant has fallen from its perch over time and Apple could well join the list. Certainly, it’s also fair to note Apple has had its share of cloud failures like the pointless Ping music social network and the early messes that were Maps and Siri — both much improved since. But then failure isn’t unique to Apple. Just ask Facebook (Home, Poke, maybe even Graph Search) and Google (Wave, Orkut, Plus).

Apple is new to the cloud, but so far has brought a very Apple-like touch to its offerings. Cook gets that it’s not some flash-in-the-pan tech phenomenon either. “I would view iCloud not as something with a year or two product life; it’s a strategy for the next decade or more,” he said back in 2012. Apple’s cloud services have since rolled out iOS 6 and iOS7 to nearly the entire installed based of iPhone and iPad users almost seamlessly. That’s more than a billion upgrades since. Wilson says, “I just don’t think they think about data and the cloud in the way you need to think about things.” The numbers tell a different story.

Post Your Comment

Post Your Reply

Forbes writers have the ability to call out member comments they find particularly interesting. Called-out comments are highlighted across the Forbes network. You'll be notified if your comment is called out.